Asset-manager fees keep falling. Thank retail investors

Published: Nov 7, 2019 4:45 p.m. ET

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Savvy marketing about fees has woken individual investors to the possibility of paying less

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“Direct platforms” are offering low trading costs and highlighting the higher fees of other financial companies with broad, visible media campaigns, according to a new report.

First the low fees came for travel bookings. Then they came for realtors. And now it’s financial-asset management that faces a race to the bottom.

But there are plenty of parties willing to speak up for individual investors — and a new report shows that it’s competition from the asset-management platforms themselves that’s making investors aware of the fees they’re paying for financial services, allowing them to demand lower ones.

In 2014, 64% of surveyed investors were either not aware of how much they pay for financial advice or thought they received it for free, according to a report from Cerulli Associates. In 2019, that applied to only 45% of investors. Platforms like Fidelity, Vanguard, Charles Schwab SCHW, +0.35% and TD Ameritrade AMTD, -0.52% are touting low trading costs and highlighting the higher fees of other financial companies with broad, visible media campaigns,” Cerulli noted in its report, “The State of U.S. Retail and Institutional Asset Management.”

See: Go on, cut your fees, BlackRock tells brokers: more ETF business for us

As previously reported, the exchange-traded-fund industry has blossomed because of its emphasis on fees. “ETF” is often seen as a shorthand for “lower-cost alternative to mutual funds.” But mutual-fund managers are increasingly engaged in cost-cutting, Cerulli’s report found.

Two-thirds of mutual-fund managers said they were offering temporary expense waivers, while 39% said they were making permanent fee reductions. And 80% reported plans to develop and distribute other types of financial products, such as ETFs, to lower the end investors’ costs.

Even ETF issuers are feeling the effects of the fee wars. Some survey respondents told Cerulli they are creating their own indexes to track, rather than paying an outside firm to do that work.

If the fee wars were indeed stoked by the investment platforms that cater to individual investors, it’s part of a renaissance for those consumers. Of all assets under professional management in 2018, Cerulli classified 52% as belonging to institutional investors, and 48% to retail. Yet individual investor assets continue to grow at a faster pace. During 2018, retail assets increased 2.3%, and institutional assets shrank 2.5%. Over the previous five years, retail client assets jumped 8.8%, versus a 3.6% increase for institutional assets.

Read: Is it time for ETFs to get active?

Andrea Riquier reports on housing and banking from MarketWatch's New York newsroom. Follow her on Twitter @ARiquier.

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